An Income Solution

The team at the Amundi Pioneer Multi-Asset Income fund looks for income opportunities in some unexpected places. Many small moves can lead to big gains.

By

Sarah Max

February 10, 2018

When Marco Pirondini finished his college thesis, in conjunction with an internship at Apple in Italy, his managers at the computer company presented him with a brand-new Macintosh Plus, circa 1989. “The first thing I did with it was build a system, a simple quantitative model, to trade the market, based on a moving average,” says Pirondini, now 50, who displays the nearly 30-year-old Mac in his home office near Boston. “Back then, I didn’t have a penny to invest, so it was all a paper simulation.”

While Pirondini’s first...

When Marco Pirondini finished his college thesis, in conjunction with an internship at Apple in Italy, his managers at the computer company presented him with a brand-new Macintosh Plus, circa 1989. “The first thing I did with it was build a system, a simple quantitative model, to trade the market, based on a moving average,” says Pirondini, now 50, who displays the nearly 30-year-old Mac in his home office near Boston. “Back then, I didn’t have a penny to invest, so it was all a paper simulation.”

While Pirondini’s first foray into investing was purely theoretical, his focus today is anything but. As the lead manager of the $1.1 billion
Pioneer Multi-Asset Income
fund (ticker: PMAIX), Pirondini’s first priority is to solve what he calls “the income problem,” providing investors who are nearing or in retirement with the right balance of income and stability.

“The solutions change, but the problem stays the same,” says Pirondini, who grew up in Monza, Italy, home to the Italian Grand Prix, and started his investment career in 1991 as an equity analyst at Credito Italiano, which through a series of acquisitions eventually became part of Pioneer Investments.

After working in several countries, in many different positions, including global chief investment officer, he moved to Boston in 2010 to head up global equities, and to help design and launch the multi-asset fund. The go-anywhere fund has returned an average of 7.8% a year over the past five years, and ranks at the top of its Morningstar category for both one- and three-year trailing return periods. (It also ranks in the top 5% of its category in Morningstar’s sustainability ratings.)

Advertisement

Last year, Paris-based
Amundi
(AMUN.France) bought Pioneer, but that has had little impact on how Pirondini and his three co-managers—Michele Garau, Charles Melchreit, and Tracy Wright—approach the income problem. If anything, Pirondini says, the additional resources enhance the strategy, which draws on the firm’s regional and sector experts to help execute ideas. “It’s an orchestra,” he says, estimating that hundreds of investment professionals ultimately contribute to the fund.

Whereas many global multi-asset managers start by allocating assets by region, or broadly between stocks and bonds, Pirondini builds the portfolio around “income-relevant micro-asset classes,” dozens of categories that range from German real estate investment trusts (REITs) and short-term bonds in Indonesia to U.S. pharmaceuticals and global financials.

“We try to bring the asset allocation one or two levels down, where it’s easier to find inefficiencies,” says Pirondini, who oversees the fund’s asset-allocation decisions and equity investments. The process is “sometimes top-down and sometimes bottom-up,” he says, and is supported by a quantitative team and a risk-management team. To minimize U.S.-based investors’ exposure to currency risk, at least 60% of the fund’s assets are invested in U.S. dollar-denominated assets.

Advertisement

These micro classes might not make sense on their own, but together they make it possible for Pirondini and his team to construct a portfolio that offers the right mix of income, capital appreciation, liquidity, and volatility. “Different pieces provide different functions in the portfolio,” he says.

For example, the fund has allocated roughly 2% to 3% of assets to catastrophe bonds since inception, partly via interval fund
Pioneer ILS Interval
(XILSX). “Catastrophe bonds aren’t correlated with the rest of the portfolio, or the economy,” he says. Yet over the past four or five years they have offered high single-digit returns and yields of 7% to 8%.

REITs are a go-to category for income investors, but Pirondini doesn’t simply shop the index. A few years ago, the fund took a position in Singapore REITs, such as Mapletree Industrial Trust (MINT.Singapore) and Mapletree Logistics Trust (MLT.Singapore), when yields were near 7%. “They had prospects of nice single-digit earnings growth in a very stable macroeconomic environment,” he says, explaining that most global REIT investors wouldn’t necessarily zero in on Singapore. “By the way, Singapore is an island, so properties there are very difficult to duplicate.”

Advertisement

When emerging market debt devalued in early 2014, the team took note of local-currency long-term Indonesian bonds trading below par and yielding 8% and 9%. The bonds were rated as high-yield, but Pioneer’s sovereign debt analysts concluded that this label belied their strong fundamentals; in 2015, they increased their position. Within a couple of years, the Indonesian rupiah appreciated against the U.S. dollar, agencies upgraded Indonesia to investment-grade, interest rates fell, and prices increased. Last summer, the fund sold most of its long-term Indonesian bonds and bought the country’s short-term bonds, which recently accounted for about 4% of the fund’s assets.

BEGINNING IN LATE 2016, the fund took a substantial position in global financials, which were recently more than 30% of equity holdings. The group offered attractive valuations, growing dividend payouts, and a hedge against rising interest rates. “This is a sector that benefits from rising rates,” he says.

The team started with U.S. firms, including
JPMorgan Chase
(JPM), but as valuations rose early last year, it shifted assets to European financials. After those stocks rallied 25% from February to May, Pirondini rebalanced and looked elsewhere, including increasing his position in Japan’s
Mitsubishi UFJ Financial
Group (8306.Japan).

Advertisement

Another relatively new holding is
Discover Financial Services
(DFS). Pirondini added it late last year, anticipating that tax cuts would lower the U.S.-based company’s corporate tax rate, while potentially improving the creditworthiness of Discover’s consumer clients. “Discover is returning a lot of capital to shareholders with buybacks,” he observes.

Back in Europe, French financial services giant
AXA
(CS.France) is a turnaround story, trading at a cheap valuation—about 10 times earnings and less than one times book value. In a shift away from capital-intensive businesses, such as life insurance, the company has filed for an initial public offering to spin off its U.S. insurance division, AXA Equitable. While this and other restructuring efforts play out, the stock’s 4.5% dividend takes fund investors one step closer to solving the income problem.